Nominal Victory in County's Quake Case

After spending six years and more than $35 million pursuing a lawsuit against several insurance companies, Los Angeles County has won a dubious legal victory: a $10-million jury award.

County attorneys had expected to recover tens of millions of dollars in their fight with the insurers over unpaid claims related to the 1994 Northridge earthquake.

Instead, the $10-million award, which is earmarked for repairs to three buildings damaged by the quake, will barely cover the county's legal fees -- and then only after it is coupled with $27 million in earlier settlement money from the same case.

A summary of the audit prepared by David Janssen, the county's chief administrative officer, sheds some light on how the county's trial costs ballooned so far out of control.

For The Record Los Angeles Times Friday September 26, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 53 words Type of Material: Correction Earthquake insurance -- An article in the California section on Thursday about Los Angeles County's efforts to collect money from insurance companies for buildings damaged by the 1994 Northridge earthquake misidentified Miguel Santana. Santana is Supervisor Gloria Molina's assistant chief deputy, not her chief of staff. Molina's chief of staff is Alma Martinez. For The Record Los Angeles Times Tuesday October 07, 2003 Home Edition Main News Part A Page 2 National Desk 2 inches; 86 words Type of Material: Correction Earthquake damage -- An article in the Sept. 25 California section about a Los Angeles County lawsuit for earthquake insurance claims may have left the impression that the county will collect $10 million from the insurance companies. In fact, the companies contend that a jury's finding of $10 million in earthquake damages gains the county nothing because that amount is less than the policy deductibles on the damaged properties. The presiding judge on the case has yet to decide which party must pay for the damages.

According to that report and interviews with county officials:

* The county paid more for expert witnesses and testimony in the trial than it did for attorneys' fees.

* The county's legal department decided for "tactical reasons" not to force its hired experts to adhere to county billing requirements, despite evidence during the trial of repeated overbilling and questionable billing. Aging and poor records will hamper a planned post-trial accounting of fees and expenses paid to experts.

* The county also made what in retrospect appears to be a strategic error. In 2000, after having spent $7.4 million in fees and costs, the county had collected more than $20 million but decided to press for more. Over the next three years, the county spent more than $28 million and collected only $17 million.

"It's a very expensive lesson," said Miguel Santana, chief of staff for Supervisor Gloria Molina. "Any litigation is a tossup, but [the report] clearly says we didn't do a good enough job monitoring expenses in this case."

The county filed a civil suit in 1997 against Aetna Insurance Co. and 24 other insurers for their refusal to pay $125 million in claims for three buildings, including the Kenneth Hahn Hall of Administration and Stanley Mosk courthouse, damaged by the Northridge earthquake. The county retained the private law firm Bergman, Wedner & Dacey to handle the case. To prepare for the trial, that firm, now known as Bergman & Dacey, hired at least 21 other firms to provide expert testimony in areas such as soil and structural engineering.

Under county guidelines, monthly invoices of those experts' fees and expenses were subject to two levels of review and approval, one by the Bergman firm and another by the county's legal department.

According to Janssen's report, the Bergman firm "did not assure experts' compliance with Bergman and county counsel's billing guidelines," and county reviews of invoices uncovered a host of discrepancies. They included failure to itemize work performed, missing bills, repeat entries and "potential duplicate billing," and multiple billings for the services of experts whose names and rates were not included in contracts.

Despite these and other problems, the county's legal team "decided not to overly stress " hired experts' adherence to county billing requirements, the report said, fearing that would "damage the critical relationship between the experts and the county."

The case went to trial in February, and the jury found in the county's favor on Sept. 3. But county officials, who sued for $164 million in claims and penalties, feel shortchanged by the $10 million the jury awarded.

"The county's argument was whether you can fix a seismically damaged building with epoxy or whether that's a preposterous notion," Supervisor Zev Yaroslavsky said. "The jury bought the argument [that you can], but this isn't over yet. The county spent a lot of money, but hindsight is always 20/20."

Clark Kelso, a law professor at the University of the Pacific and expert on complex litigation, said the county may have miscalculated a "fish or cut bait call" in 2000, when, before trial, it had collected $20 million in settlement after spending only $7.4 million in fees and costs.

"That's a pretty good investment," Kelso said. "Litigation has phases, and you have to reevaluate at each phase, not make one decision up front and say, 'Go, go, go.' "

County attorneys would not comment on the case, citing two ongoing cases they said are related to the insurance claims. The county recently hired a "litigation cost manager" in an effort to trim the costs of lawyers' and legal fees, judgments and settlements. Those combined costs for the county in 2001 were $167 million.